Chapter 18. Question 7. Part 1-18 Question.

Homework: Chapter 18 Homework Question 7, P18-20 (similar to) Part 1 of 18 HW Score: 57.14%, 4 of 7 points Points: 0 of 1 Save Domestic NPV approach Farbucks is thinking of expanding to South Korea. The current indirect rate for dollars and South Korean won is 996 won per dollar. The expected inflation rate in South Korea should hover near 12% for the next five years The expected US inflation rate should stay around 3,9%. The discount rate for expanding is 13% for Farbucks. Given the following projected cash flows for the expansion project, use the domestic NPV approach to determine whether Farbucks should expand to South Korea Year: initial investment costs of 85,000,000 won per coffee shop Year 1 cash flow 15,000,000 won Year 2 cash flow 35,000,000 won Year 3 cash flow 60,000,000 won Year 4 cash flow 90,000,000 won Year 5 cash flow 45,000,000 won Domestic currency approach in multinational capital budgeting consists of the following steps Step 1: Calculate the forward exchange rates Step 2 Convert all cash flows in foreign currency into dollars using current and forward exchange rates Stop 3 Convert all future dollars into present value with the domestic discount rate Step 4. Add the net present value of the outflow and inflow Step 5. Accept the project if its net present value (NPV) is positive and reject if negative First, complete step 1 by calculating the forward rates, The current indirect exchange rate is 996 for dollars and South Korean won. The inflation rate in South Korea is expected to hover near 12% for the next five years and the US inflation rate is expected to stay around 3 9% What is the 1-year forward indirect rate for dollars and South Korean won? won per $ (Round to four decimal places.) Get more help Clear all Check